Preamble. This
paper is presented and published in order to stimulate debate – and have
feedback - on the various economic, political and social issues raised. Though
the context is Britain, many of the issues raised are relevant for other
countries. Readers are encouraged to circulate it among friends and
colleagues who might have an interest and contribute to the debate.

Abstract. The paper discusses the main aims and
characteristics of the three Ways in British economics and politics: the
First Way refers to the period from after WWII to the mid 1970s; the second
Way refers to the Conservative Government period starting from 1979; and the
Third Way to the New Labour Government period since 1997. These three Ways
are considered in relation to their main characteristics, the policies of the
relevant governments and the problems they have encountered. The New Labour
policies are analysed in more details by reference to the case of the
National Health Service. The reasons why the New Labour Way is different from
the second Way as well as the problems it is facing are highlighted. A
discussion of why New Labour has taken the Third Way route follows.

Introduction

The
re-launch and revival of the British Labour Party as New Labour has gone
hand-in-hand with the proposition that there is a ‘Third Way’ in economics
and politics, that is a set of strategies and policies which differ
substantially from the one followed in the post-WWII decades (the First Way)
and from the one later followed by Margaret Thatcher (the Second Way)2.

There are plenty of
meaningless sound bites and of policy statements in the various manifestos of
the Party but no clear statement of the essence of its philosophy or of the
main aims of the so-called Third Way and of its differences from the two
preceding ‘Ways’3. The aim of this paper is to bring out the
essential features of the three Ways in relation to their aims and strategies
and then to analyse the New Labour government policies in more detail.Mention will also be made of the problems
that the three Ways have encountered or are encountering. The aims of the
three ‘Ways’ are inferred from the actual policies and strategies and not
from the declared oral or written pronouncement of politicians and electoral
programmes. Politicians themselves and their ideologues tend to make
high-sounding, empty or even obfuscating statements rather than be explicit
about their aims and strategies; so we must infer their aims from ‘what they
do, not what they say’.

The
‘First Way’

In
the post-WWII there was a large consensus – which to some extent was cross
parties – over the following aims:

The economy was to be run under the capitalist mode.

Industries which were both basic to the rest of the economy and
unprofitable for the private sector would be nationalised and managed by
the state sector. This would include also those services essential for
the workforce to function effectively such as health and education4.

The level of capacity utilization and employment to be kept high
in the interest of both capital and labour.

The balance of class forces to be kept at a level which would
avoid social upheavals and industrial strife. The State would take a role
in securing this.

There
was a large degree of consensus about these aims, though, of course,
disagreement erupted often enough on the distribution of the cake between
capital and labour and on the specific policies to achieve the aims. Various policies
were designed through the decades by successive governments to achieve these
broad aims and in particular:

A series of tripartite arrangements – between business, trade
unions and government - and the establishment of relevant institutions
to achieve some balance of class forces and avoid strife. In some
periods government intervention in this balance took the form of incomes
policy.

Demand management using both monetary and fiscal levers in order
to stabilise the economy and achieve some sort of equilibrium between
the objectives of high levels of employment, low inflation and the
country’s external accounts.

There
were problems with this ‘First Way’
and whatever consensus there was in the first couple of decades it broke down
completely in the 1970s. High levels of employment had gradually led to a
shift in the balance of class forces away from capital. Inflation rates
escalated as a result of the stronger and better organised labour force as
well as of exogenous forces such as the increase in oil prices under the OPEC
cartel. Meanwhile the structure of the economy was becoming old and unable to
compete with younger economies whose capacity had been completely built or
re-built after the WWII. Both inflation and unemployment began to rise; the latter
took a cyclical as well as a structural form. Whole industries became
unviable as the economy struggled – and often failed - to get into new
sectors. As industries became uncompetitive, balance of payments crises
became a feature of the British economy.

The
‘Second Way’.

It
is within this background thatMargaret
Thatcher took power in 1979. The aims
of her government, partly openly announced and partly clearly implicit in her
policies, can thus be stated.

To shift the balance of class forces away from labour and thus
reduce the bargaining power of trade unions on a long term basis if not
permanently. Her policies were built on a fertile ground since the
structural imbalances and changes in the economy were already operating
against labour.

To restore the profitability and competitiveness of capital.

The
strategies followed to achieve these aims took a variety of forms. In
particular the first aim was to be achieved via the following.

High levels of unemployment and fears of losing one’s job became
a powerful disciplinary force for labour.

Reshaping the context of Trade Unions power via legislation which
included outlawing secondary strikes and restrictions on a variety of
activities including picketing.

The latter strategy went hand-in-hand with organisational
fragmentation strategies for the labour force. By this I mean the
strategies – followed by both private and public sector institutions -
of outsourcing part of the production process; this caused the labour
force previously all employed by the same company, to be divided into a
myriad of sub-contractors. This fragmentation of labour led to greater
difficulties for the organization of labour and its Trade Unions in the
public and private sector in both of which the strategy was used and
indeed encouraged by the Government.

Allowing and indeed often encouraging the worsening of working
conditions and the casualisation of labour
with a view to increase productivity and decrease the bargaining power
of labour.

These
strategies supported not only the first aim but also the second one because
they were supposed to lead to lower labour costs and higher productivity
levels. Moreover support for the second aim was also to be achieved via large
privatisation programmes and generally via drastic reductions in areas of
direct public involvement in the economy. The basic idea being that a cut in
the production of goods and services by the state sector would generate
investment opportunities for the private sector.Moreover, a smaller state sector would
require lower levels of taxation leaving higher disposable incomes to
individuals and firms. This would – allegedly – encourage people to work
harder and firms to invest more.

The overall underlying
assumptions of the ‘Second Way’ can thus be summarised. If the balance of
class forces is shifted away from labour, the overall business climate as
well as the costs of production will be more favourable to capital and will
lead to investment particularly in new industries. Moreover, investment
opportunities for the private sector will be created by reducing the
provision of services by the state.

The ‘Second Way’ was not
without problems for capital and
the government let alone labour. The economy was in a very poor state for
many years: high unemployment; poverty; begging in the streets, hitherto an
unknown feature in post-WWII British society; the decline in levels of
education and in the health of the labour force were undermining productivity
let alone leading to a cohesive society, one to be proud of. Indeed Margaret
Thatcher contempt for society was summarised by her well known 1987
statement: “There is no such thing as society. There are individual men and
women, and there are families”5.

However, in a way the major
problem was for capital itself. Though some investment opportunities were
created and some foreign capital attracted in more deprived areas, the basic
problem was that the shedding of activities by the state does not
automatically create profitable
investment opportunities. Most of the activities which were in public
ownership by the 1970s had originally become so because they were not
profitable under private ownership. They did not necessarily or not always
become profitable when the Thatcher government privatised them. With every
privatisation the City went into euphoria because immediately after each
selling by the government the value of the company shot up with huge gains
for the buyers and for the institutions involved in the deals; this is not
surprising given the fact that the public companies’ assets were sold at
grossly low prices. However, often the euphoria became short-lived as many
companies faced difficulties and needed propping up with continuous handouts
from the taxpayer; substantial amounts of these subsidies went to the
shareholders and to increasingly demanding corporate managers.

The
‘Third Way’.

Aims

New Labour swept in amidst an enthusiasm
for political life which had not been seen in Britain for decades. The
enthusiasm was mixed with high expectations about the changes which were to
come for the economy and society after the previous bleak two decades.

The expectations were soon to
be checked by the reality of a government that: put economic prudence and
stability over fulfilment of pent up needs; put the financial expectations
and interests of the higher echelons of society, the City, the big
corporations – domestic and foreign – and the right wing press before those
of the millions of people who voted it in; proved to be very aggressive in
foreign policy and over enthusiastic for wars to achieve those aggressive
aims; developed a very cavalier attitude towards democracy and accountability
on the strength of a high parliamentary majority achieved, partly, through
the specific British electoral system.

Many people on the Left have
in the last few years tended to see the record of New Labour as no more than
a continuation of Mrs Thatcher’s policies of which Prime Minister Blair is
known to be an admirer. However, even the most critical assessors of New
Labour, will recognize that: (a) the economy has been run competently and
with high levels of employment; (b) the last two years have seen a
considerable increase in government expenditure in the public services
particularly health; (c) the people at the bottom of society have been better
provided than they had been for the previous two decades: street begging has
become almost a thing of the past in the last few years.

These achievements are real
and relevant; however, are they the crux of the differences between
Thatcherism and Blair-Brown-ism? I think not and I will argue for this
position in the rest of this paper which I now deliberately structure along
the lines of the previous two, starting with the following implicitaims of the New Labour Government. They are aims springing from
both the legitimization and accumulation function of the State.

To keep the balance of class forces strongly in favour of capital
along the trajectory mapped by the Thatcher government.

To create opportunities for profitable investment by the private
sector.

To secure long term advantages for British capital abroad and
lower the economic and political risk of access to primary resources and
to investment opportunities.

These aims to be achieved while securing: a stable economy with
high levels of employment and low inflation; and a stable social
environment in which the bottom of society had a safety net to fall in.

Aim
three, coupled with the specific ambitions of the PM, led to the illegal and
aggressive war in Iraq whose consequences will be felt world wide for
decades. This aim has clearly not been achieved and is very unlikely to be
achieved; indeed a higher level of instability and increased risk for people
and for investment in the Region has been created. But this topic is beyond
the scope of the present paper.

Aim one was to be achieved by:
keeping the Thatcher legislation on industrial relations and Trade Unions;
taking a declared stance of hand-off in industrial relations on the part of
the government; greatly increasing the scope for the fragmentation of labour
and hence for the difficulties in its trade unions organization. The latter
objective was achieved by: organizational fragmentation brought about by the
outsourcing strategies imposed on the providers of public services over and
above those implemented during the Thatcher years: increasingly the labour
force finds itself working for many private companies rather then one single
public employer. Moreover, many providers are increasingly foreign firms6
and this adds to the power of capital over labour because of the added
difficulties of labour in dealing with a foreign employer.

To the fragmentation of labour
created by the involvement of private providers within the public sector was
added another type of fragmentation by New Labour: the encouragement – not
always successful so far – for public sector institutions to ‘go it alone’
and operate individually and indeed in competition with other institutions
not only in providing services but also in negotiating with their work force
and setting contracts for their staff.

In the education sector, some
university managers have indicated their desire to move in this direction.
Moreover, the establishment of the so-called Academy Schools will create
scope for local bargaining with education labour force at school level rather
than centrally. In the health service the organisational fragmentation of the
sector is leading in the same direction. Here are two examples on this trend.
New Labour has established the formation of so-called Foundation Hospitals,
that is hospitals with independent status free to conduct their own business
including bargaining with their work force: once they are fully established,
the health workers may be forced to enter into contractual arrangements with
individual hospitals and not with a unified National Health service (NHS). A second example derives from legislation on
Primary Care.From 2004 negotiations
by General Practioneers (GPs) are to take place at
the local level – with their local Primary Care Trust – rather than at the
country’s level with the Ministry of Health.

In essence the main aim of
both Thatcher and Blair’s governments was to support and strengthen capital
via:

Positioning the balance of class force away from the power of
labour and trade unions as much as possible

The penetration of capital into areas hitherto seen as the
preserve of public provision

Some handing over of subsidies to private companies

As regards the first element New Labour
endorsed Thatcher’s policies and went much further in the labour
fragmentation strategy. As regards the second element Thatcher and Blair
strategies differ.

Key differences between the ‘Second and
Third Ways’.

Thatcher
had served capital very well in her strategy to lower the resistance of
labour and its trade unions and therefore to shift the balance of class
forces away from labour. This she succeeded in doing. New Labour, as
mentioned above, has happily embraced the newly established balance, was keen
to continue her policies and went further into the fragmentation strategy to
secure further shifts in favour of capital.

The Thatcher government
initiated the outsourcing of non-core activities within the public sector as
a whole and New Labour endorsed this move and went further along the same
root. However, the major differences between Thatcher and New Labour were
with regard to the provision of core activities in the public services
sector.

The
Thatcher government’s ideological stance on the role of private enterprise
versus governments led it to believe that, provided the state provision of
services were cut, the private sector would step in and organise the
provision of the services along market lines. This is fine in theory, but in
practice, private capital would only invest in such provisions if there was
the prospect of profitability. But such a prospect eluded many traditional
public services. The demand for private health services or education cannot
be met with production at profitable
levels when the majority of the population cannot afford it. At the same
time, these services are essential to the supply of an effective work force
to the economy: they are services that are not only beneficial to the individual
consumer/user, they generate enormous positive externalities whose effects
spread throughout the economy and society.

Similarly, the privatization
of transport does not secure profits to the rail companies unless massive
state subsidies and high fares are introduced. This was indeed done.
Transport services also produce strong externalities. Unreliable, unsafe and
costly transport leads to disruption in the workplace as well as to demand
for higher wages to meet the costs of getting into work. The use of cars as
alternative means of transport causes congestion and pollution which
generates well known health problems and high economic and social costs.

It is interesting to recall
that Mrs Thatcher herself was apparently against the privatization of the
railways. This was implemented by the Conservative Major government that
followed her demise. Once the euphoria of the privatization gains by the
stock exchange – caused by the underselling of State assets to the private
sector as in other cases – had subsided, the huge problems of this sector
began to unravel: poor service; high fares, low safety standards; application
for ever increasing State subsidies. These problems eventually led to
re-nationalization of Rail Track, the company which owns and manages the
basic track infrastructure.

Moreover, high levels of
unemployment – as in the Thatcher era - are not exactly conducive to high
demand for most type of products whether traditionally provided by private
enterprises or arising from privatized public services.

The key insights of New Labour
were therefore the following:

A healthy economy running at high levels of employment can
provide healthy demand and thus lead to profitable investment
opportunities provided labour and its trade unions can be kept at bay.

The provision of public services by the private sector can become
profitable only if the state
guarantees demand and funding thus lowering the risk for the private
investor. Moreover, even under such conditions, profitability may
require state subsidies to the companies providing the services as
became evident from the case of the British rail network.

The
latter point led to a new element in New Labour’s strategy compared to
Thatcher’s. The State should not cut public expenditure on the provision of
public services; on the contrary it should increase it compatibly with
‘prudent’ financing. However, while funding the services out of tax revenue,
the state should shed its direct provision which would increasingly be
contracted out to private companies: this means effectively a regime of
private production/provision in the context of social/public funding.
Therefore, while the strategy of fullcommercialization of public
services (private funding and private provision) by the Conservative Government
failed the private sector which it was supposed to help and encourage, the strategy of private provision with public
funding by New Labour is helping capital. This is because the former
strategy leaves the consumer to pay for the services while in the latter
strategy the consumer receives the services free and the taxpayer foots the
bill. Under the ‘Third Way’ capital is secured low risk, high demand, high
prices provision and thus profitable investment. It is an irony that one of
the traditional ‘raison d’etre’ of - and justification for - profits is the
assumption that the entrepreneur runs risks when investing. Here the state is
using taxpayer money to reduce substantially the risk while securing profits
for the private sector.

This pattern can be seen in
many provisions of public services from transport to health to education to
Home Office ones under New Labour: the outsourcing has increasingly been
extended from non-core – security, catering, IT provision and maintenance,
catering, laundering and cleaning - to core activities. The mantra we hear
over and over again by the PM and his ministerial entourage is that the
investment expenditure the government is providing must be subject to
‘modernisation’. If one scratches the sound bite surface, one sees that
‘modernisation’ means allowing in private companies to provide these services
paid by the taxpayer and free at the point of delivery.

The National Health Service (NHS): the main test case7

The
opportunities for involvement by the private sector in the provision of core
activities in services such as Education or Home Office or Defence services
are rather limited: most non-core services have been privatised; however,
extending the process to the key service is more problematic because the
opportunities for profitable
involvement by the private sector are more limited: nonetheless some attempts
are being made as follows. First, the privatization of non-core services has
proceeded along the Thatcher route; second, during New Labour government the
private sector has become very involved in the provision of infrastructure
via the Private Finance Initiative (PFI) on which
more below; third some opportunities for to the private sector to get a share
of core business is given here and there: from the outsourcing of prison
management to the proposal for State supported pupils to study at private
schools – in Britain called ‘Public’ Schools - to proposals for the
outsourcing of Probation Services by the Home Office, to the outsourcing of
some Defence activities to private contractors.

However, it is within the NHS that the major scope for full private sector
involvement in non-core activities, as well as in infrastructure and core
services delivery has been spotted and is currently being implemented. There
is not much more to add about the outsourcing of non-core activities. Except
that some non-core activities such as laundering, cleaning and catering have
a strong impact on the health and safety of patients thus affecting the
quality and cost of health care.8

Let us look at the involvement
by the private sector in the provision and management of the building
infrastructure: the process is similar in several of the public services
institutions from health to schools to universities. The key development was
the Private Finance Initiative (PFI) developed in
1992 by the Major government largely under pressure from an ailing
construction industry. The scheme involves the public sector institution
entering into a contract with a private sector consortium of construction and
facilities management companies as well as banks, for the following services:
raising funds and construction of buildings – hospitals, schools or
universities. The buildings would then be leased to the public sector
institutions by the consortium which would also provide some or all of the
following: maintenance; security, cleaning etc. The contracts would last for
an average of 30 years at the end of which, in most cases, the land and the
building developed on it would belong to the private company/consortium. The
public institution would pay: interest to the private banks for the funding;
rent on the building; fees for the various services provided.

These payments are well above
what would cost to produce the same infrastructure and services under public
provision because: (a) borrowing on the private market is much more costly
than if the government borrows; (b) to the cost of the various operations
must be added the profits of the companies involved; (c) there are high
administrative managerial and legal costs of dealing with the development and
management of the contracts. The latter item of costs results in duplication
across the NHS as a whole because the structure is
now fragmented and each Trust is operating on its own and there is no central
expertise to advise and help. Pollock (2004: 55-6) estimates that the costs
of services PFI buildings are between two and three
times higher than if the same building were built with funds borrowed by the
government and the whole development were in-house rather than outsourced.
The funds for these payments come from the annual allocation to the
institution for the provision of its services: the higher costs means that
cuts have to be made on the year to year provision of clinical services in
the case of hospitals; in the case of universities it will result in lower
staff/students ratios for years to come. The whole PFI
system raises issues of intergenerational equity: we are forcing our children
to go with poorer clinical services to pay for our current infrastructural
expenses.

Nonetheless, it could be
argued that having additional bed capacity is beneficial in a tight NHS and so is having better buildings for crumbling
schools and universities. However, the capacity is often not additional but
substitute and the extra cost often means that those NHS
Trusts that want to own their new hospitals at the end of the period may have
to knock down old decrepit structures and build new ones. However, because the
latter is so expensive only smaller capacity can be afforded and the overall
bed numbers is cut.Pollock (2004: 95)
writes on the implementation of PFI by New Labour:
“The result was an average reduction of 30 per cent in the number of beds and
a 25 per cent reduction in budgets for clinical staff during the five-year
period between the signing of the contract and the opening of the new PFI hospital…”

A similar move on the
provision of physical infrastructure is going on in the Primary Care part of
the service. Since 2001 a PFI type of system is
being implemented regarding the provision of GPs premises; private firms are
being involved in the funding, constructing, leasing and managing GPs
premises.

What about the involvement of
the private sector in the provision of core health services? When New Labour
came to power they were keen to point out that they were not just borrowing a
scheme developed by the Major government: the PFI.
They renamed it PPP (Private Public Partnership); this was a cosmetic exercise
as regards the provision of infrastructure; however, though little noticed at
the time, it signalled the intent to apply outsourcing strategies to a wider
range of core services: the private sector from now on would provide public
core services under the title of ‘strategic service delivery partnership’
(Pollock, 2004: 58).

There are three areas of
health services where outsourcing is currently being implemented though they
are at different levels of development: (i)
hospital clinical services both diagnostic and consultants’ services; (ii)
primary care services; and (iii) long term care for older people. As regards
(i) the involvement of private surgery units for
routine, low-risk operations has been widely publicized as has the use of
foreign capacity with patients travelling to France or Germany to have their
operations (paid for by the NHS).

As regards (ii), the
traditional contract of GPs with the NHS is one of
independent contractors not of salaried employees; this makes it very easy
for other providers to come in and contract out of the NHS
the care of thousands of patients – so much per patient and so much per
specific service to the patient – and then run the Primary care Unit as a
profitable venture: doctors and other health workers will then be employed at
a salary that will leave a good surplus for the company. The entrance into
the sector by private companies is proceeding at a fast pace, encouraged by
the recent high settlements for payments to GPs. At the moment the Government
through the PCTs is offering contracts to British
and American companies; however, it is not difficult to see that in future
some GPs may sell their practices to health care companies, particularly
since they are now allowed to sell the practice ‘goodwill’.

One point to note is the fact
that it appears that the private providers of primary care are intending to
run the practices with a much higher ratio of nurses to doctors than in
current GPs practices: John Carvel in The
Guardian of May 25th 2006 reports a total of three GPs and
seven nurses to run a practice of 7000 patients in East London. This ratio is
consistent with those in two other areas of full private involvement in
primary care: NHS Direct and NHS
walk-in centres (Pollock, 2004: 144-5).

As for (iii) the privatization
of care for the elderly had proceeded very fast under Thatcher; New Labour
was happy to keep it in private management and to dilute regulation in spite
of some negative high-profile cases. Indeed New Labour has increased the
scope for the involvement by private providers of nursing/care homes through
the following. In order to free overstretched bed capacity (and, I think,
also to generate further areas for profitable investment by the health care
providers) the Department of Health has created an extra category of
patients, those in need of ‘intermediate care’. They are mainly the elderly
people who occupy hospital beds though their acute clinical needs are over –
or cannot be met; they still need nursing and care and this is to be provided
by privately run nursing homes at the state’s expenses.

Moreover, the taxpayer is made to
contribute to the private sector also in a more direct way: through
subsidies. The annual subsidies to the private Rail operators have so far
been much higher than anything ever received by sector when it was
publicly-owned. Not all hand out are easy to unravel and disclose. ITV plc
Annual report indicates that the company had an increase in pre-tax profit of
£143m for 2005 (p.39); where does this money come from? Courtesy and
generosity of the Culture Minister who cut the licence fee from 207m to 75m
(p. 24); what did the company do with this nice hand out? The dividends
increased by 30% (p. 16).

It is often thought that the ‘Second’ and ‘Third’
‘Ways’ are much the same in relation to public services because in both
strategies the private sector is involved. However, there are substantial
differences. The general thrust and the essence ofThatcher’s support for the market system in
relation to services previously provided by the state was to cut public
expenditure and State involvement in them and encourage the full ‘commercialisation’ of the services.
This would lead to a US type of health care in which private provision is
funded via private insurances. New Labour’s strategy is to increase
government expenditure in the services while outsourcing their provision to
the private sector; in other words it is a form of state sponsored private provision of services, in which private
provision is encouraged and supported by social funding via compulsory
National Insurance contributions.

The Blair government repeats
almost daily the mantra that the NHS is not being
privatized because services will be ‘free’ for the patient. This is another
case of deliberate obfuscation: they are using the possible confusion between
funding versus provision: only the first one is public in the Third Way; the
production/provision is becoming more and more privatized.

The
‘Third Way’: problems unravelling.

Blair’s
so called ‘modernization’ programme for the public sector and public services
has generated much discontent in spite of large amount of funds made
available by the Chancellor in the last couple of years. Why? Surely, we
should welcome a government that provides public services free for the user
and increases expenditure on them. Are we just whingeing or is something
wrong? If so are the problems related to issue of competence in managing
change or is there something more fundamentally wrong with the whole concept?

Undoubtedly there may be
problems with managing changes and the more so when the changes are non-stop
and do not carry with them the goodwill of the staff who are involved in
these changes. However, I think that there is a fundamental problem in the
‘modernizing’ changes that have been imposed on the public services that make
the current problems inevitable and indeed will lead to further problems in
the future well after Blair and Brown are out of the political scene.

The problems can be seen in
terms of the following: costs;
complexity and disintegration; quantity and quality of provisions; social
cohesion.

Costs

The
PFI system is much more costly than if the funds
were borrowed by the government and the capital expenditure for the buildings
managed by the NHS or Universities or Education
authorities for the following reasons: (a) Private sector borrowing carries
higher interest rates than public sector one; (b) The private consortia
charge profits for their shareholders on top of the actual cost; (c) These
project involve a tremendous amount of expenditure on financial and
management consultancy as well as on lawyers to draw contracts and handle
inevitable litigations. The latter costs are further compounded by the fact
that each Health/Education Authority or University has to have its own
‘experts’ because the centralized expertise that existed pre-Thatcher has
been disbanded. The systems have been decentralized and institutions of the
public sector have indeed been and are encouraged to compete with each other.

In relation to core services
one opponent of the reforms, Frank Dobson - the former Health Secretary under
Blair – writes in an article in The
Guardian of 1st July 2006: “The private diagnostic and
treatment centres are being paid on average 11% more per operation than NHS hospitals” and later “Commercialisation has already
doubled the administrative costs of the NHS – only
4% under the old system”.

Simon Jenkins in The Guardian May 24th 2006
expresses the frustration of much media in stronger terms that I have seen
elsewhere. He writes; “The Treasury handling of privatisation will, I
believe, one day seem not far removed from what happened at Enron. Brown’s
aids have encouraged public services, especially health education and transport
to indulge in extravagant private borrowing from their associates in the
City, enabling ministers to boost their ‘share prices’ and leaving future
taxpayers to pay inflated bills. The new £1bn super-hospitals will each carry
a cash burden of over £100m in profit and debt payments before caring for one
patient. This is way above the cost of public loans. Little known firms such
as Capita, Atkins, Serco and Carillon have grown
rich on these contracts. Capita lent Blair £1m for his campaign last year after
its turnover from public contracts increased in seven years from £112m to
£1.4bn.”

It
is often argued that any extra expenditure of private provision is more than
counterbalanced by increased efficiency. There is, in fact, not much evidence
that the private sector is better at running public services (Florio, 2004). Any productivity gains tend to be short
term and are related to cut in staffing and or/use of poorly qualified staff
which creates problems for quality and social cohesion. Moreover, we should
take note of the inefficiency of the most privatised health care system on
both the funding and provision sides: the US system.

We do not have official
statistics on the provision side but we know that the US has the lowest
percentage of public expenditure in relation to total health care expenditure
among all OECD countries: in 2004 it was 44.7%. It also has the highest
health expenditure as a percentage of GDP (15.3%) and the highest expenditure
per capita ($6102). To this huge expenditure corresponds poor performance as
evidenced by relatively low values of life expectancy (76.8 years) and high
ratios of infant mortality (6.9 per 1000 live births). Most developed
countries have life expectancy between 78 and 80 and infant mortality of
between 3 and 4 (OECD, 2006).

Complexity and disintegration.

The
last point on costs deals naturally to the issue of complexity: a myriad of
companies, contracts, consultants, experts and lawyers are involved in the whole
process: contracting and outsourcing require a whole new layer of bureaucracy
in both the public and private sector. The transaction costs of all this is
difficult to assess but it must be very large indeed. Apparently the
contracts between London Transport and the private companies to which the
services have been contracted out run into millions of pages. Moreover, the
disintegration of the NHS into separate institution
encouraged to compete rather than cooperate require that each keeps their own
complement of ‘experts’ thus leading to duplication across the health system
as a whole.

Moreover,
the disentegration of services leads to safety
issues in both transport and health services because each private company
will try to shift the burden of safety measures on to others.

Quantity of services and capacity.

The
government insists that once the public services institutions have been
allocated the funds it is their responsibility to see that their budgets are
balanced. Institutions do not have a choice as to how their services are run
in terms of involvement by the private sector; they have to go along with the
so-called ‘modernization’ programme or face lack of funding and eventually
closure. However, the ‘modernization’ programmes are very costly as mentioned
above. Where does the money come from? The institutions of the public sector
– Universities or Hospitals or Schools – have to pay the PFI
charges out of their annual funding and the extra costs imposed on them can
only come at the expense of their core services such as clinical services in
the NHS. This is most evident in the NHS where huge injections of funds are not leading to the
expected improvements in services or to increase in the number of available
beds. Sir Ian Carruthers, acting chief executive of
the NHS is reported in The Guardian (14th June 2006: p. 4) as saying that cut
in hospital services are very likely and possibly even closure of whole
hospitals.

As regards capacity, the
decrease in the number of hospital beds brought about by the high costs of
building and managing new hospitals under PFI has
already been mentioned. Moreover, in many cases private involvement in the
provision of services cannot increase capacity because the staff working in
the private sector comes from the NHS. In some
cases staff come from foreign countries; however, it is difficult to be proud
of poaching staff from countries whose health service can hardly afford to
lose them and whose educational resources have paid for their training.

Quality of services and safety.

The
private sector aim in production is and must be: profit. This aim often
stands in the way of the quality of services provided or of safety. The UK
railways have had a record of several serious accidents since privatization;
hospitals’ cleaning standard deteriorate with huge costs to the patients who
may suffer the health consequences of problems such as MRSA
with high costs for society and the NHS who have to
pick up the consequences; meals provided in schools or hospitals becomes substandard:
Pollock (2004: 38) reports that: ‘…10 per cent of seriously ill patients were
found to have suffered malnutrition while they were in hospital.”She thus concludes on the effects of the marketisation of NHS hospitals:
“Some of the signs are all too clear, even if the root cause is usually
officially denied – new PFI hospital buildings with
too few beds and too few staff to cope with demand; outsourced meals too
unappetising to eat; substandard cleaning or sterilisation of equipment by
underpaid outsourced workers, contributing to the raise of dangerous
infections; medical accidents due to faulty work by private pathology labs.”
(79-80).

Erosion of social cohesion.

The
erosion comes about largely in the following ways. First because the outsourcing
and generally the involvement of the private sector in the provision of
public services fragments the labour force involved in the services. In the NHS workers employed by the Health Trusts – usually
health workers – operate alongside private agency workers and private
companies workers. The organizational fragmentation of the sector leads to a
fragmentation of the work force with loss of morale and indeed with loss of
bargaining power. Pollock (2004: 113) writes: “Outsourcing has changed
relationships inside the hospital, creating a new kind of ‘social apartheid’.
Outsourced workers on lower pay and worse conditions of employment struggle
to meet their supervisors’ demands, while working alongside NHS staff with higher pay and status who do not always respect
them”.

Social
cohesion is also being undermined in the health sector because well paid
powerful GPs partners or hospital consultants work alongside under paid
nurses who work hard to deliver the targets and points leading to the high
remuneration of doctors.

In addition, the
decentralization and competition drive between various Health Trusts or
hospitals leads to a further fragmentation: institutions are encouraged to
compete and eventually set their own salaries independently of other
institutions. Erosion of social cohesion comes about also because the
decentralization leads to inequality of provision by geography; moreover
further inequalities are introduces because the long term care services –
such as services for the elderly have now been almost completely outsourced
and many old and disable people are left at the mercy of for-profit care
providers.

Moreover, a third very
pernicious element of erosion of social cohesion and indeed addition to
social problems come via the ‘modernizing’ prescriptions for schools. The
British school system always had elements of elitism and class divide;
however, the Blair government is greatly adding to those elements - partly
for ideological reasons - by; (a) encouraging Faith Schools which separate
children along lines set by their parents’ religion; and (b) moving towards a
system that encourages selection which is likely to result into the
educational ghetto-ization of children from the
worse off families.

In spite of government’s
utterances, many parents are unimpressed with the existing Academy Schools
and others are mounting legal opposition to the establishment of new ones as
reported in a special Report on Academies in the Education Guardian of 13th June 2006.

These elements of erosion of
social cohesion must be seen also in the context of ongoing changes in the
distribution of income and wealth in favour of the rich and very rich.Pro business policies including cuts in
income and corporation tax rates coupled with increases in indirect taxation
have led to overall regressive taxation and to considerable shift in the
distribution of income and wealth in favour of high income and high wealth
groups in society. Tony Atkinson,at a
lecture at La Sapienza University, Rome (2006) gave
comparisons for the Gini coefficient of inequality
between 23 developed or intermediate countries. It shows that around the year
2000 the within-country inequality in income distribution was highest in:
Mexico (where the coefficient was almost 50%), Russia, USA, Estonia, Israel,
UK and Italy). As regards the UK, the presentation gives further details that
show that the Gini coefficient has increased from
around 26% in 1977 to over 35% in 1990 with a slight decline to around 33% in
the mid-1990s and a slight increase after that to reach the previous level of
around 36% in 2000.

Atkinson (2003) traces the
secular trend in the incomes of the top 1% UK earners during the XXth century. Fig 2:36 shows that the share of the top 1%
declined steadily from after WWII to 1979 and then increased steadily during
the Conservative and New Labour governments. The UK trend in the last 25
years is similar to that in the US – though the two shares in 2000 are
respectively 13 and 17 percent - but not to that of France where the share
has remained fairly constant throughout the period. He concludes that as
regards the UK “..the shares of top incomes are now broadly back where they
were at the end of the Second World War. The last quarter of a century saw an
almost complete reversal of the decline in observed inequality at the top
that had taken place in the preceding twenty-five years” (p. 22-3). Callinicos (2001) also reports that inequality has
widened under New Labour. He writes:

“… during
Blair government’s first two years in office…The richest 10 per cent of the
population saw their income rise by 7.1 per cent, compared to only 1.9 per
cent for that of the poorest 10 per cent.” (p. 52).

He thinks that the responsibility for such
trends under New Labour lies largely with the “…shifting the fiscal burden
from direct to indirect taxation” (p. 53) started under the Thatcher
government and continued under Blair-Brown. This strategy makes the overall
system of taxation more regressive.

Summary
and conclusions

The
theme of the paper is set by the question in the title: is the Third Way just
an ideological shell hiding essentially Thatcherite
policies?Or is there something new
and different to it? My answers to these questions are as follows.

Ideology does indeed play a
strong role in Blair’s strategy; an even bigger role is played by obfuscating
words and sound bites: ‘modernization’, ‘choice’, ‘equality of
opportunities’, are just a few.

Some commentators are baffled
by the fact that Brown – the man who loves prudence – backs a strategy that
clearly wastes taxpayer’s money: is it possible that he is ill advised by
consultants and civil servants too close to the private sector?Is he too much led by the ideology of
Blair? Or is he fixated with keeping Public Sector Borrowing at low levels?
In my view none of these are true. The sad truth is that the Blair-Brown
project is about using State revenue and intervention to create profit
opportunities for the private sector and further shifts in the balance of
class forces away from labour. To this grand design everything else is
subordinated.

Thatcher’ government faced the
crisis of capitalism of the 1970s head on and with brutal strategies in which
the main aim was to increase the viability of capitalism via: (a) a shift in
the balance of class forces between labour and capital; and (b) widening the
scope and opportunities for profitable activities. These two aims are shared
by the Blair government. However, as regards the second strategy the Blair-Brown
project realized that cutting public expenditure is not only difficult but
may be counterproductive for capital. So, here comes the crux of the ‘Third
Way’ which is the following: use of taxpayer’s money to create profit
generating opportunities by the State through the involvement of private
companies as contractors to the public sector for the provision of services
previously supplied by the State: essentially create a regime of social
funding in the context of private production/provision.Moreover, ‘modernization’ strategies were
also directed towards further inroads into (a), the disintegration of the
institutional infrastructure with the – hidden – aim to fragment the labour
force operating within the public services which traditionally had strong
trade unions.

An added bonus of New Labour’s
strategy for capital is the fact that outsourcing, decentralization of
provision, the institution of Foundation Hospitals and decentralised,
competition-driven organizational structures for schools and universities,
all contribute to the fragmentation of labour. There is organizational
fragmentation because labour is employed by many different companies rather
than a single institutions; geographical (by nation-state) fragmentationbecause the decentralization of
responsibilities of single Health Trusts or University adds an element of
difficulty for trade unions organization; inter-nationally because the
outsourcing to foreign companies compounds the difficulties of organization
by labour working in the same sector9. All this contributes to the
shifting of the balance of class forces away from labour.

The implementation of the
Blair-Brown project is currently under way and set to proceed much further.
If things continue in their present course it is not difficult to see a time
when most GPs practices are owned and run by large British and American
private health companies and when much further inroads will be made into the
privatization of hospital care.10 As regards Primary Care the
scene has been set by the recent high pay settlements for the services of
GPs’ practices. It is worth remembering that the settlement is about the
prices that the NHS is prepared to charge Primary
Care contractors (currently mainly GPs partners) for the provision of health
services. The combination of prices and volume of services – largely set by
the number of patients contracted as well as the range of services offered –
will determine the budget for the GPs practices; once all expenses are paid
including the largest ones for salaries of hired doctors, nurses,
administrators and other health workers and for renting on the premises, the
surplus will form the partners’ remuneration.

Given the recent generous
prices settlement by the NHS, the sector will
attract private investors keen to turn into profits the existing surpluses:
they will employ salaried health workers – including doctors – and
administrators. It is not difficult to see the shape of things to come: the
drive to cut costs will lead to the employment of cheaper labour and the
adoption of labour saving technology. This will herald the era of nurses-led
Primary Care assisted by computer-aided diagnostic technology11
which uses AI (artificial intelligence) software; this system is already in
use by NHS direct. These developments in Primary
Care will see the end of the British NHS as
established in 1948. They will eventually lead to the end of the current huge
gap between pay of partners GPs and of nurses and other health workers: the
for-profit production by health corporation will gradually make everyone
salaried within GPs’ practices.

The problems of this
Blair-Brown grand design for the public sector are beginning to unravel and
they will increase as time goes by: problems for the user of public services;
problems for the health workers and eventually problems for capital; problems
for the State and the political class. Why the latter two problems? Because
this grand design signals a profound structural crisis for capitalism. If the
system needs propping up via continuous State intervention it cannot be very
healthy. So what is going to happen when all that can be outsourced is
outsourced and an even larger share of inland revenue goes to pay for private
companies’ profits?

Moreover, the state is in
danger of despoiling itself of major functions and this may lead to a problem
of legitimacy: if the State’s function is limited to collecting taxes and
handing them over to private – domestic and foreign – companies for the
actual provision of services can the State justify itself? Will this create
also problems for democracy? (Florio, 2004: 155).

A separate important question
may be one that political scientists and future historian of politics may be
able to tackle: how is it possible for a Labour-led Parliament to preside
over the erosion leading to the demise of the NHS
and to similar trends in other public services? A question almost as
important as why the parliament and the Labour Party did not call government
to account over the Iraq war. The huge amount of obfuscating that has been
and is going on may explain why it was difficult for the wider public to
understand the significance of the changes, but not why competent elected MPs
accepted them.

Yes, the ‘Third Way’ is a new
way; it is not just Thatcherism in new clothes, though a good amount of
garments have indeed been enthusiastically borrowed.

References

Atkinson,
A.B. (2003) ‘Top Incomes in the United Kingdom in
the Twentieth Century’ Mimeo, December.

3. An insider view is given by Giddens
(1998) and (2000). A critical contribution is given by Callinicos
(2001).

4.
The British tradition of elite private schools – the so-called ‘public
schools’ - influential though it has been in public life, was never large
enough to affect the training and education of the labour force at large.

5. Interview in Woman’s Own

6. The World Trade Organization (WTO) rules
that once public services are run on a private basis – even partially – then
foreign firms have the right to compete for provisions. The opening up of
public services to foreign firms greatly helps the saturated US health
industry; it also helps the British firms who use the developing expertise at
home to branch out into new countries.

7. The main arguments in this sub-section are further developed in Ietto-Gillies (2006). An excellent source of the history
of the NHS is Pollock (2004).

8. I owe this point to D.A. Gillies.

9. See Ietto-Gillies (2005), ch. 15.

10. Pollock (2004:
123) reports that: “In 2001 the BMA [British Medical Association] published
guidance for hospital doctors considering exchanging their salaried status
for that of subcontractors and forming doctors’ ‘chambers’, on the model of
barrister’ chambers, as a way to sell their services to the NHS and other hospital providers.” Boots, the chemist is
planning provision of GPs and consultants’ services in its premises. Other
large retailers have also expressed an interest.

11. The use of AI programmes to assist diagnosis as well as the better
utilization of health workers at all levels of skills may be a development to
be considered positively but not in the context of profit-led provision.